1 Energy Stock Offering a Massive Annual Dividend: Is it the Perfect Buy for Passive Income Investors?

Key Points

• The average energy stock has a yield of 3.3%, but at its current share price, MPLX MLP is yielding 7.5%.

• The business backing its distribution is built on a reliable fee-for-service model.

• MPLX has increased its payouts annually for 13 consecutive years.

• 10 stocks we like better than MPLX ›

The S&P 500 (SNPINDEX: ^GSPC) index is currently offering a miserly 1.2% dividend yield. The average energy stock has a yield of 3.3%. But energy sector player MPLX MLP (NYSE: MPLX) is offering a huge 7.5% yield, and its dividends are backed by a growing income stream. Yet while some investors will find this ultra-high-yield investment the perfect buy, others may want to tread with caution.

What's backing that 7.5% yield?

That 7.5% distribution yield is the primary reason why some investors will find this energy investment attractive. But you shouldn't buy any investment based on yield alone. You need to dig deeper.

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MPLX operates in what's known as the midstream of the energy sector. Upstream companies extract oil and natural gas. Downstream companies process that crude oil and natural gas into usable fuels and chemicals. The midstream players move those commodities from place to place and handle their storage. Think pipelines, storage hubs, and transportation terminals. As such, the upstream and downstream businesses are heavily dependent on commodity prices. But midstream players like MPLX are toll-takers. They charge fees for the use of their infrastructure assets, but those fees are based on set contracts or volumes -- not on the values of the commodities flowing through the pipelines. That makes the midstream a more stable arena.

This midstream master limited partnership (MLP) is working to grow its business, too. That includes MPLX's recently announced acquisition of North Wind Midstream for roughly $2.4 billion, which is part of a larger $5 billion capital investment plan. Management believes that its growth spending will allow it to keep making regular annual distribution increases for years to come.

So the 13-year streak seems likely to extend to 14 and beyond. Meanwhile, its distribution in the second quarter of 2025 was covered 1.5 times by its distributable cash flow. That means that even if there's some adversity in the business, MPLX has a cushion to work with before a distribution cut might be on the table. If you are looking to maximize the income you generate from your portfolio, MPLX might be a good choice for you.

MPLX won't be right for everyone

That said, MPLX stock isn't going to be a perfect fit for everyone's portfolio. For example, and perhaps obviously, if you are looking for a growth investment, this income-focused MLP probably won't be to your liking. But there's more to consider here than just that big-picture theme.

MPLX increased its distribution by 10% in 2022, 10% in 2023, and, in the third quarter of 2024, came through with a 12.5% hike. That was a very big increase to cap a pretty impressive three-year string. But in the second quarter of 2025, the company's distributable cash flow only rose 1% year over year. Between the big distribution hike and the modest rise in distributable cash flow, MPLX's distribution coverage ratio dropped from 1.6 in Q2 2024 to 1.5 in 2025.

The distribution isn't at risk given the ample 1.5 coverage ratio. But the robust distribution growth of recent years is something that investors probably shouldn't take for granted. It might not continue. Given the lofty yield it already offers, that may not be a big issue for some investors. But for those who favor faster-growing income streams, well, MPLX may not be the best fit.

MPLX is worth a closer look

With a roughly $50 billion market cap, MPLX is one of the largest midstream players in North America. It has a solid and growing business backing a lofty yield. Those are all positives that will appeal to income-focused investors looking for large and reliable passive income streams. That said, the company's rapid pace of distribution growth over the last few years may not be sustainable, which means that this MLP could be a bad fit for some.

Still, with a huge 7.5% starting yield, it wouldn't take much distribution growth (just 2.5 percentage points) to create a 10% return profile. And that would be right in line with what most investors expect from the broader stock market.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.